Good day, ladies and gentlemen, and welcome to the Second Quarter 2007 Virgin Media Inc. Earnings Conference Call. My name is Amy, and I will be your coordinator for today. [Operator Instructions]. As a reminder this conference is being recorded for replay purposes.

I mean would now like to turn the presentation over to your host for today's call, Mr. Richard Williams. Please proceed, sir.

Please, can I draw your attention to the Safe Harbor statements on slide two. I remind you that some of the statements made today may be forward-looking in nature, and that actual results may vary significantly from these statements. I would also ask you to refer to our latest filings with the SEC for applicable risk factors.

Now I will turn over to Jim Mooney.

James F. Mooney - Chairman

Thank you, Richard, and thanks to everyone for joining the call today. Let me start off by commenting on the release we put out yesterday. As you know, we announced on July 2nd, that we had received a proposal to acquire 100% of our common stock, and that we would consider the proposal as part of our review of strategic alternatives, including a process for possible sale of the company. We have been very pleased by the fact that potential strategic buyers and financial buyers have continued to confirm a strong ongoing interest in the transaction. Given the debt market conditions, as you all are aware, our financial advisors have recommended to us that we extend that process until these parties can complete their proposals in a more stable debt market environment.

As you can all appreciate, I really cannot comment further on that topic. Many potential buyers have expressed strong interests in the process, because we've got an excellent company and we are increasing our competitiveness, across the product platforms significantly under the new Virgin brand. And we will now wait for that debt market to cooperate.

We've had a lot of exciting development as we closed out the second quarter, and moved into the third. Our television platform has reached all time highs in terms of attractiveness as we roll our new VOD content across Virgin Central, our V+ Box launch and announced exciting new sports offerings. We've launched faster broadband speeds of more content, grown our mobile contract base smartly, and we've enhanced our telephony offering considerably. All of these advantages bode well for a rebound in 3Q, as we move away from Sky's anti-competitive practices on basic carriage pricing in the second quarter.

We told you last quarter that the loss of the Sky basics channel would impact all the RGU net adds, and though this was the case, the total impact was less than we expected. We are now highly confident that the churn impact was largely contained in Q2 and do not expect it to materially affect churn for subsequent quarters. In fact, you'll hear today about our improving performance as we head into the middle of Q3 and for the second half in total. We also told you last quarter that after out-performing Sky TV growth in Q1, the loss of Sky basics would result in negative TV net adds. In fact despite losing approximately 40,000 customers, due to the loss of the Sky channels, we have done better than we expected three months ago, growing TV subscribers slightly in the quarter.

I will take you through the drivers behind the encouraging TV deployments later, specifically the huge consumer appeal of our new TV services. Our market leading DVR, the V+ Box, which has seen continued strong demand with subscribers up 46% in the quarter. Even more exciting is the dramatic takeoff in our peerless on-demand service with views up 36% in the quarter. Our experience shows that if you're a user of the VOD service, you are very unlikely to churn.

We're not resting on our laurels by any stretch though, and we are continuing to invest in making the service even better for our customers. In the last quarter, we made some major market changing content initiatives significantly improve our TV product offering.

We signed a deal with Setanta to include their sports channels in our top tier basics package. This includes the Premier League and FA Cup games and means that top live football is available to basic TV customers for the first time in the U.K. Result of this is that we have the best value proposition and the only place to watch live Premier League football… the best place to watch live Premier football in its totality.

We have announced that we're working with Setanta to launch a sports news channel. And we also announced at Virgin One our re-branded preview channel will air this autumn. So it's clear to us that our customer base and now our prospect base are seeing the great value of our TV platform. You will hear more in a minute about how we expect to translate that into second half volumes.

Broadband, we have upgraded our 10 meg to 20 megs further extending the quality of our product compared with our competitors. As we add more broadband contact such as Premier League highlights, Stream coverage of shows like Big Brother and video footage of the Virgin Mobile sponsored V Festival, a music festival this summer, the speed of our broadband offering will be much more of a competitive advantage.

In telephony, I will show you the improving trends throughout the quarter, reflecting some of the pricing and bundle initiatives we announced. The mobile contract business is off to a great start cross selling to our cable customers. And this quarter saw the highest level of cross sells since we acquired Virgin Mobile proving the consumer appeal of Quad play.

So in summary, our customers are now buying more products from us than ever before, and it remains the case that the more parts of Quad play that our customers buy from us, the likelihood of them leaving falls dramatically.

And lastly, on the first chart, I want to address one of our key goals for the year, which is to deliver strong cash flow growth year-over-year. Our progress made on achieving the Telewest merger synergies means that the outlook for cash flow in the second half is strong and consistent with our previous expectations. As Jacques will describe later, we have plans to further reduce costs through reengineering of our operating processes triggered by the implementation of our new billing system.

So now we return to the chart called RGU Net Adds. Again at Q1 we stated the one off impact of the loss of the Sky basic channels would affect overall RGU net adds in the second quarter, as many of the TV customers that left us were also broadband and telephony customers. For this reason, our TV and broadband net adds were lower than in Q1. However, the worst churn impact of this issue was largely contained in the second quarter and we can look forward to rebounding in Q3 in the second half.

Our TV net adds in the quarter were better than expected and despite the loss of Sky basics, our digital TV net adds grew by 40,000 and total TV adds were slightly positive. The drivers again behind this better than expected performance was the popularity amongst our customers of the new TV products, specifically our VOD services and again the excellent V+ DVR Box.

Virgin Mobile continued its strong performance in the second quarter with 53,000 contract net adds and we are very excited about the potential to cross sell mobile contracts to our cable customers.

And finally, as we outlined in Q1 we’ve focused on improving the performance of the home phone products, and despite the Sky basics issue we reported slightly better net adds in Q2 than the previous quarter. And furthermore, as you can see on the chart, the performance improved rapidly throughout the quarter with June net adds being almost flat, a testament to the success of the telephony initiatives we put in place and are starting to take hold during the quarter.

So, in summary we expect RGU net add to be much stronger in the second half of the year, with across the board improvement in each of the product areas.

Now let me turn to cable customer adds. The net customer loss in the quarter was 70,000, primarily due to the medium-term impact of the loss of the basic channels and the loss of telephony only customers. But encouragingly customer additions again improved throughout the quarter, and into July giving us confidence of improved performance in the remainder of the year. Gross connections showed month-on-month improvement, with 23% higher in June than in April. This growth has continued in the first month of the third quarter, with July gross connects again higher than June. This reflects our increased attractiveness to customers as a result of our marketing activities, evidenced by the increase in inbound call rates throughout the quarter and substantial improvements in the efficiency of our sales operation under our new MD of Sales, Pete Tadio. Disconnects were impacted in the quarter by the estimated 40,000 Sky losses, but adjusting for this churn was flat at 1.6%. We also remain confident we will report positive net customer adds in the second half of the year.

Now let's look at our bundles. We have continued to successfully increase the average RGUs per customer. With an average of 2.23 RGUs per customer in the second quarter, up from 2.12 in the same period last year reflecting our drive to drive bundling. Triple K cable penetration hit a record 45% in the quarter due to the success of our 3 for £30 and 4 for £40 bundles, which remain our most attractive acquisition bundles.

The sales of mobile contracts to our cable customers, has continued to be highly successful with 53,000 sales in the quarter, the highest quarterly total since we acquired Virgin Mobile. We have now sold 139,000 cross sell mobile contracts and while this represents a good performance it still only represents only 3% of the cable base, highlighting the further potential for upside on the mobile product. The benefit of our bundling strategy is evidenced by the stickyness of our triple play customers. In the second quarter these customers had a churn rate that was half that of the average customer. So as we increased triple play penetration it bodes well for future churn and for the Quad play business. We will continue to deliver the best products across the Quad play for the best value.

ARPU, on next chart fell from 42.75 to 42.60 in the quarter but again this was due mainly to concessions we made to customers, who were justifiably upset with losing the Sky channels, and a decline in telephony usage. To maintain our competitiveness and what remains a competitive U.K. market we made the tactical adjustments and price reductions to our telephony product which also affected ARPU. But we expect ARPU to stabilize and grow in the second half of the year.

Let's go look at the next chart, video on-demand. I now want to take you through the great success we've experienced with our market leading on-demand services. In the second quarter, over 44% of our digital customers used our VOD services each month, compared to 36% at the start of the year. This means we had an average of 1.4 million customers who used the services each month in the quarter. And at the same time our customers are using the services more with 14 views per user per month, up from 11 in the first quarter. So what that means is that our customers viewed on-demand services at an average of almost 19 million times during the month in the second quarter, including 4 million movies on-demand.

Now although we obviously think these KPI show exceptional growth in the take up and the popularity of our on-demand services, the experience of Comcast in the US who we sat with and talked to, and they were kind enough to meet with us on this, suggests there is still a lot of growth to aim for. The main reason for our lower KPI's versus Comcast is the length of time we have offered these services. Comcast has been marketing VOD for around 4 years now and we have only been at this for basically six months. So we are ahead of where Comcast was at this stage, and we have learned a lot from our discussions with them.

VOD is really a new service in the U.K., as it spreads through customer usage, marketing and word of mouth and it represents outstanding potential for customer growth and churn reduction.

I'll reflect for a moment on the benefits of increasing our customers' usage of the services. Firstly, the on-demand services drive incremental ARPU, but more importantly, they vastly improve customer loyalty and reduce churn. So as customers become more accustomed to using these services they become more reliant on them making them obviously less likely to churn. And as I said, the churn rate of VOD users is less than half of that of non-VOD users. I don't think this should be surprising to anyone who's used Virgin Media's on-demand services as I think once you try them, you will not want to move to any other TV platform.

If you look at the next slide, and you put it in perspective what the usage levels mean, this slide shows the equivalent share of viewing of our on-demand services compared to the viewing of the most popular non-terrestrial channels, that is channels other than those broadcast via analog terrestrial such as BBC 1 and 2, ITV 1 and Channel 4. In active users' homes, VOD viewing share was 3.9% in Q2. This was almost double the share of the most popular non-terrestrial channels viewing share on Pay TV platform. So, I think this really puts into perspective how significant on-demand is already in the viewing habits of our customers.

Let's now talk about future developments in the VOD service. Despite the current popularity of on-demand, we were determined to make this product even much better. This will further differentiate us from the inferior attempts of some competitors to replicate these services. We currently have 500 movies, over 1,000 hours of top TV series, over 1,000 music videos available everyday, as well as many hours of catch-up TV. And so in total right now, this means we have 3,600 hours of on-demand content and we expect to strength our lineup with further major content additions in the second half of the year, including more high definition movies and catch-up content. Malcolm Wall and his team expect these additions to take us to around 5,000 hours by year-end and we have 10,000 hours are our goal in the very near future.

In particular, we are excited to be working with the BBC on the launch of their iPlayer, and we expect to be the first TV platform to offer the service. This is will be heavily marketed by the BBC and will increase the catch-up BBC content available to our customers from the current 50 hours to approximately 500 hours. In addition, we signed a number of agreements with key providers for additional on-demand content like the names like HBO, MTV, National Geographic, The History Channel, and Nickelodeon to name a few. I believe these initiatives, as well as general customer education will further drive usage of our VOD services in the quarters ahead.

I will now turn to the V+ Box, the second TV product success. This is simply the best DVR in the market and has been labeled as such by Consumer Magazine. We have increased the V+ Box by 46% in the quarter and have most of the opportunity ahead of us with still only a little over 5% penetration of our DTV base. So, encouragingly over a quarter of the V+ adds in June, were also customers new to Virgin Media, making that box a product of excellent acquisitions. Although it's still in its early days, the V+ Box improves ARPU and reduces churn and in combination with our VOD service and enhanced content makes our TV platform more attractive than it’s ever been as we enter the second half of 2007. Once our customers become acquainted with this box and all the advantages it provides, it again can act as a real churn reducer.

With that let me turn it over to Steve to discuss our improved operations and some more about our other offerings. Steve?

Stephen A. Burch - President and Chief Executive Officer

Thank you, Jim. On my first slide, I would like to talk about some of the exciting market changing content initiatives that will further drive growth of our TV product. We have announced an innovative and ground breaking deal with Setanta to give our customers something that has never been done before, premium sports channel in a basic TV package. The deal means that our new and existing extra large customers get the Six Setanta sports channels for additional charge. This means the customers who are sports fans but cannot or do not want to pay the high price of Sky Sports will now have access to 46 exclusive live Premier League games, plus many other sports products. We have now, in my opinion the more superior pay TV basic service in the U.K. For avid sports fans, Virgin Media is the only place that can watch all the 138 Premier League games through one single provider. We have also announced that we are working with Setanta to launch a sports news channel. When launched, this will be included in all our TV packages for no additional charge and we will quickly challenge the Sky Sports news channel for quality and depth of coverage.

If you turn to the next slide, you will see that we are very pleased with our new sports content and have launched a high profile marketing campaign to let our customers, both existing and perspective you know what a great deal it is. In fact, they will save around £10 per month whether they receive 46 or the full 138 live Premier League games, reflecting compelling value for our customers. As the football season kicks off this weekend, we expect this new advantage to drive strong TV and customer demand in growth.

On the next slide, to further drive our sports credentials, as well as driving significant advertising revenue, we have launched our major sports portal. There are over 12 million online sports fans in the U.K. sports fan in the U.K. and this is a great opportunity to engage with this audience. Our sports website will show exclusive highlights of all Premier League and football league matches this season. And you don’t have to be a Virgin Media customer to take advantage of this. Anyone with access to the internet can watch this program for free. This website will be used to cross promote our TV service as well as to drive traffic to our portal, which is already a top ten hit site in the UK with over 90 million visits per month, ahead of Amazon.

On the next slide, I will talk about how content strengthens our platform. I want to update you on the excellent performance of our Virgin Media television channels and their importance in creating value for the cable platforms. Virgin Media TV's viewing share is up 15% year-on-year while commercial impacts are up 24% year-to-date. In contrast, the viewing share of the Sky basic's portfolio has continue to decline, down 9% year-on-year. In June, Living was the second most watched basic pay-TV channel across all platforms, behind only our own joint venture UKTV and well ahead of Sky One. In fact Sky One's viewing hasn't just suffered from it's withdrawal from cable, it's share of viewing on Sky's own platform continues to decline.

Moving on to our new free channel Virgin 1, and the opportunity it gives us to leverage our content assets to drive growth in the cable platform. Virgin 1 will be available across all TV platforms to maximize advertising revenue and the value of cross promotion. There will be a heavy emphasis on promoting our cable TV service, in particular the on-demand product with messages such as watch the next episode on Virgin Media's on-demand service. And full service is now available on Virgin Media to watch as and when you want.

We have announced that Virgin 1 will be the exclusive Home of the Riches in the UK. The series was highly acclaimed by both critics and audiences when they aired in the US and stars Eddie Izzard and Minnie Driver, who was nominated for a Emmy for her performance in this show. We will also have Sarah Connor Chronicles, which was inspired by the Terminator movie series and we will be the home of the Star Trek franchise from Next Generation to Enterprise. And we will be announcing more top content in the coming months.

I would like to… on the next slide to talk about our next marketing challenge initiative, ultra fast broadband. In Q2, we moved our top tier broadband customers from 10 meg to 20 meg for no extra charge and as you can we have Uma to sell it for us.

On the next slide, I think it's worth taking a few moments to reflect on the network advantage that we have over our DSL base competitors. There has been much talk in the UK regarding next generation broadband and the huge cost implication of delivering it through fiber to the curb. But we're already there. We have fiber deep into network, which allows us to offer commercial services of 20-meg now and 50-meg in trial. In comparison, the average UK maximum ADSL speed is only around 4.5-meg despite the marketing claims of our competitors. The truth about broadband is that DSL remains hugely disadvantaged to cable and will fall further behind as we move to Docsis 3 standard. The truth is that only about 10% of UK homes are capable of receiving 20-meg speed to be a ADSL 2+ and only 30% can receive more than 8 megs. A 100% of our cable broadband homes will be capable of receiving 20 megs by the end of this month. The only real competitor to the cable, VDSL, the still years and billions of pounds of CapEx away from reality. Needless to say we are informing the market about our huge advantage and the fictitious claims of DSL operators through marketing campaigns as the truth, lies in broadband campaigns as you can see on the slide.

The quality of our broadband is evidenced in our consumer surveys. The chart on the bottom left of the slide shows the net satisfaction score of customers of the main broadband operators and we lead the path. The comments on the bottom right of the slide shows from an independent survey of our broadband customers perceptions of us. Our customers see us as the biggest, fastest, most innovative, best value, caring, cool and supportive.

On the next slide, I would like to update you briefly on the success of our re-branding. The spontaneous awareness of Virgin Media, six months from launch of the re-brand, is significantly ahead of other comparative national brand launches. We achieved 52% compared with Virgin Mobile six-month launch at 21% and O2 arguably a very successful re-brand and only 17%. Our positive national awareness is now at 90%. But awareness is not everything; you also need to be viewed positively. The chart on the right of the slide shows how our brand image has tracked over time versus some of our main competitors'. I think this is evidence of the great performance from our marketing team and gives us a great platform to achieve the second half performance that Jim has talked about.

On the next slide, I would like to look briefly the performance of our mobile business, one year on since acquisition. Our policy of focusing on the higher ARPU contract segment has been successful. In the second quarter, we added 53,000 contract customers on top of 54,000 in Q1. This has primarily been due to the success of our cross-sell initiatives as we create attractive offers into our customer base. As a result, contracts make up 7% of our mobile customers compared to just 2% of acquisition. The better contract mix, as well as higher prepaid ARPU has increased ARPU in the quarter by £0.63 to £10.70.

On the next slide, looking at our business division, the quality of revenue improved with both the retail and data mixes improving in the quarter. Although revenue declined in the quarter, this was largely due to the completion of a wideband transmission network built in Q1 as we implied at the time of the first quarter results. This will not impact revenue in future quarters. Significantly, the revenue decline did not impact margin, which is more or less flat quarter-over-quarter as the revenue decline was primarily due to lower margin products leading to an increase in the overall margin percentage.

Now at this point, I would like to turn it over to Jacques to talk about some of the financials.

Jacques D. Kerrest - Chief Financial Officer

Thank you, Steve. I want to start by looking at the OCF increase in the quarter. As you can see on slide 24 total OCF has grown by £9 million in the quarter to £350 million. Cable OCF has grown to £16 million mainly due to a reduction in branding and marketing spend following Q1 brand launch. Mobile OCF grew by £6 million due to prepaid ARPU increase and contract growth. Content OCF was down £12 million in the quarter due mainly to the non-recurrence of an £8 million accrual reversal that occurred in the first quarter in relation to an illegal claim and higher programming cost.

On slide 25, as you can see from this slide, we have expanded our OCF margin over the last two quarters and we have extracted synergy and integration savings. OCF will continue to improve in the second half, as Jim indicated as we continue to extract further savings. We are continuing to take headcount out of the business with a total of 6,000 targeted by the end of the year.

We have completed our ERP integration, meaning that we now have a single system for finance, HR and supply chain. We also completed our second billing system migration in July, meaning that now around 80% of our customers are on a single system. And we are continuing to make procurement savings on the back of our bigger purchasing power. As you can see we are well on our way to deliver the £250 million of synergy promised at the time of the announcement of the merger of NTL and Telewest.

On the next slide, you can see that we are targeting our next phase of cost reductions. We are undergoing some major initiatives for significant restructuring of our cost base. For example, we are transforming all our sales channel activity. We are integrating all the previously separate sales function, improving effectiveness and simplifying the customer experience. We are growing retail and web channels and have reduced reliance on field sales. We are making changes in the structure of our installed field service and network operations to regionalized operations and reduce cost. Where efficient to do so, we are also outsourcing certain non-core areas to allow us to reduce cost and focus on more critical parts of the business.

We continue to restructure and simplify our network division organization. We are integrating the Virgin Mobile organization into the existing consumer business involving sales, marketing, IT and finance. We will continue to develop and deploy our sales service capability which helps us to reduce costs and improve efficiency in our customer service organizations.

And finally, we continue to make improvement to reduce fault rates which have follow-on benefits in cost and efficiencies. All of this means that we should continue to make significant cost savings in 2008. We expect this further savings to be around half of the level of the Telewest NTL merger synergies.

And with that let me turn it over for questions to the operator, operator?

Question and Answer

Operator

[Operator Instructions].

And your first question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed.

Benjamin Swinburne - Morgan Stanley

Thanks, good morning or good afternoon, guys, thanks for taking the question. Let me sort of, ask a big picture question about sort of the competitive environment and the product initiatives that you are rolling out. If you look at the revenue growth opportunity, gross adds, churn and ARPU expansion are sort of the various levers you have. It looks like gross adds were flat on the customer side year-over-year. Does that get better in the back half of the year sort of speaking to it, on a customer basis, and if so, why? And how do you strategically think about your pricing? Are you, to the extent Sky gets more aggressive as they deploy voice, how important is it for you to sort of toe the line of rationality on pricing to maintain your financials versus play defense on the customers side. It looks like this quarter, and it looks more color [ph] that you took pricing down a bit on some of your core products to sort of stem the losses maybe. But if that’s not the case, please let me know. And that’s the basic question; I have got one follow-up. But would love to hear your thoughts there.

James F. Mooney - Chairman

This is Jim. Basically, you are right. First of all, the gross adds are improving along with the comments we made about net adds and RGU. They will be up substantially in the third quarter. This is a result of all the things we talked about this morning. I think the TV platform is at its all time heightened strength. It is getting great viewership on VOD. We are adding a lot more content. The telephony pricing structures were a little bit out of whack [ph]. So Steve and Neil and the team have been bringing them down over the last few quarters as part of bundles. We sell almost everything in a bundle now. So it's much easier for us to manipulate a bundle price and keep these higher bundle very competitive. And that is in concert with the branding, the marketing and the tactical aspects of that is what is driving the increased volumes. So I think telephony pricing was holding those volumes back a bit. That’s now in line; it has been in line for the last few months. So that’s why you are seeing the increased volumes.

The other thing that exasperated the ARPU was the concessions we made to hold onto our customers who are upset that the channels were coming off. But I think you can see from the lack of viewership of those channels that we contained that pretty well, and in fact more importantly the viewership of our new stuff. And that, we haven’t even gotten the kicker from Virgin 1 yet. So as we add more content to that, that will further enhance our viewership of our own content.

Benjamin Swinburne - Morgan Stanley

What do you think drives the ARPU on a customer basis up in the second half? Are you making any changes to the calling plan that… on the metered side it takes that higher?

James F. Mooney - Chairman

Yes, we have made some changes to the meters, minute rounding and things like that.

Stephen A. Burch - President and Chief Executive Officer

The second billing conversion that just occurred, which now gets us up to over 80% of our customer base on a single billing platform, allows us to add more customers to minute rounding that will save make us… several million pounds that we are not recognizing now. In addition to that, the launch of Setanta Sports on XL basic will drive some of our medium and large customers up to the XL service as well as, we believe, generate new customer growth because it’s a service that’s never been up before at a basic level of service.

And don’t forget the fact that while we are having trouble with... had some declines on telephone, we also have the mobile package bundled offer to people who are moving from fixed line phone to mobile phone.

James F. Mooney - Chairman

Yes, the mobile ARPU is three to four times higher than the prepaid ARPU. So that transition helps your overall ARPU as well when you look at it on a blended basis, which the numbers we showed you today are not. But also, I remind you what we told you two or three or four quarters ago, the difference between the old NTL and the old Telewest bundle rates has not been closed yet and the good news is because Telewest bundle rates are continued to go up very nicely. So that difference still exists, which drives the triple play penetration higher each quarter, which drives your ARPU higher. That was the prime contributor to the difference in ARPU between NTL and Telewest and that opportunity on that old NTL side still exists as well.

Benjamin Swinburne - Morgan Stanley

One last question and then I will pass the line over. But on TV specifically, I think both companies, the old Telewest and the old NTL had rolled out a low end video, a free video or a starter tier and that the mix of the customer base had been drifting downwards pressuring ARPUs. Has that continued or has that changed now with the roll out of VOD and V+?

James F. Mooney - Chairman

Well, we used the low price or nearly free TV offer to help drive growth in the past. The content change that we made was Setanta going on XL, we’ll shift that to a higher price product offer. I don’t want to keep relaxing [ph], but you want to keep coming back to that, but I think we really transformed basic content in the U.K., something that’s been going on in the US for a long time. But we now have the equal of very strong regional sports on the basic for the first time ever. We will be able to upgrade medium and large to XL. We’ll be able to keep below the XL that might have churned off and we’ll be able to grow customers on to the XL service because they now get a superior content offering as opposed to our competitors. And we believe that will continue to drive ARPU growth.

Benjamin Swinburne - Morgan Stanley

Great, thanks a lot.

Operator

Your next question comes from the line of David Kestenbaum with Morgan Joseph. please proceed.

David Kestenbaum – Morgan Joseph & Co. Inc.

Okay, thanks a lot. Can you talk about some of the trends that are still continuing into July, that you’ve seen in June?

James F. Mooney - Chairman

Yes, I think if you quote the comments, all the positive trends essentially have either continued or actually gotten better in July. So RGUs, net ads, gross ads and churn have all gotten better, as we got into July.

David Kestenbaum – Morgan Joseph & Co. Inc.

Okay. And then Jacques, can you talk about how much you spent on the re-branding, the Virgin re-branding in the quarter and then going forward, is there going to be any more expenditures in that?

Jacques D. Kerrest - Chief Financial Officer

No, we didn’t give the exact number for the quarter. But what we said was we were way down compared to Q1. And that’s the reason our OpEx was lower in the quarter and therefore OCF was higher.

David Kestenbaum – Morgan Joseph & Co. Inc.

Okay. And then on the off net, revenues went down this quarter. Can you talk about when we’ll see the inflection point? When do you think you’ll get revenues and subscribers to accelerate on that part of business?

Stephen A. Burch - President and Chief Executive Officer

We’ll start to see improvement in subscriber growth through the second half of this year. I’m not sure yet at what point we’ll start to see significant revenue enhancements, I’m looking more at this point for land grab to pick up the customers in the area that we don’t serve right now. So we’re going forward with our version of Freeview TV, although with us being able to sell content on part of that we think that’s actually going to enhance it quite a bit.

And in addition to that, we are going forward with our phone and broadband services in the manner that we can. But we'll look to see more subscriber growth activity in the second half from off net than we will, revenue growth.

David Kestenbaum – Morgan Joseph & Co. Inc.

Okay, thanks.

Operator

Your next question comes from the line of Bryan Kraft from Credit Suisse, please proceed.

Bryan Kraft – Credit Suisse

Hi, thanks. I had a couple of quick ones. One the shortfall in on-net broadband net adds, relative to the previous two quarters, how much of that was driven by the Sky basic situation and how do you see the on-net broadband net adds trending in 3Q based on what you’ve seen in July. And then also what impact have you seen so far from your competitors getting to offer subsidized PCs to new broadband customers.

And then just two real quick ones. Can you talk about the average ARPU of your cable customers that are signing up? And also can you just address the CapEx outlook for the year? You still think it comes in around £600 million? Thanks.

James F. Mooney - Chairman

Yes, I think most of the broadband decline from the first quarter to the second quarter was associated with the same 40,000. So the proof of the pudding in the third quarter, whether there’ll be a rebound back to the first quarter levels or it won't. And so we’ll know then. But we feel very positive about third quarter broadband right now.

Stephen A. Burch - President and Chief Executive Officer

You also get near the end of the second quarter of the seasonal disconnect from the student population that comes back on near the end of the third quarter. That had some impact as well which is fairly traditional.

James F. Mooney - Chairman

The average ARPU of new guys coming on, now that we’ve taken the price adjustments on telephony, and the fact that some of the base pricing is pretty much in equilibrium, so that’s not causing us a big problem. The fact of the last question where the free TV, I mean the free TV was aimed at potential Freeview customers and existing Freeview customers who we could also get on the rest of the Quad play and that eventually up sell them to the higher TV packages. So again you’re getting elements of the Quad play when you’re selling the basic TV package; although that might not be quite at the average ARPU.

So, Neil monitors that thing very, very carefully with his team, and with finance in terms of coming on, coming off and by bundle. And obviously, then translates that into MPVs of the bundles, and they review that with Steve and I regularly. Jacques, you want to take the conference question?

Neil Berkett – Chief Operating Officer

I was just going to… just prior to that Jim, just add to the fact that the medium TV package has always been the smallest percentage of the three packages. So, the vast majority you know, an excess of 80% actually of our packages for TV are large and extra large. Jacques.

Jacques D. Kerrest – Chief Financial Officer

Yeah, thanks Neil. On the CapEx, yes we believe that will finish the year around 600 million in CapEx.

Bryan Kraft – Credit Suisse

Great, thanks very much guys.

Operator

Your next question comes from the line of Tom Egan with Oppenheimer, please proceed.

Tom Egan - Oppenheimer

Great, thank you. There are just the two questions, one on fixed line insurance. Jim, you mentioned that you only lost 7,000 subscribers in June which is certainly a nice positive movement. What was it in terms of last year? So how did June of ’06 compare to the Q2 of ’06?

And then secondly, should we assume that you’re going to continue to lose fixed line service in Q3 and Q4 or could you almost maybe gain subscribers or be flat for the last two quarters? And then I have a follow up thanks.

James F. Mooney - Chairman

Neil, you want to take that?

Neil Berkett – Chief Operating Officer

Yes, sure. The churn for second quarter last year was 1.5%. So, if you compare underlying churn for second quarter this year at 1.6%, it was broadly the same. I’m sorry I missed the second part of the question, could you repeat that for me?

Tom Egan - Oppenheimer

Sure, what I was wondering was how did the June of ’07 compare to the June of last year? Is there a seasonality within the quarter? And then secondly, should we still assume that you will lose fixed lines subs in the latter two quarters, Q3, Q4 of this year?

Neil Berkett – Chief Operating Officer

Sure. No, there is not a huge seasonality within the quarter for the second quarter. You get a bit of an upturn in Q3 as Steve spoke earlier in terms of the back end of the month with students. But I don’t have the June stats exactly with me, I’ve only got Q2 but there won’t be any seasonal impact that will be an operational improvement.

In terms of fixed line telephony, we see ourselves basically holding out telephony customers going forward. We will return basically in the second half of the year to a position where we will not be losing telephony subs. It might be a slight increase, but not dramatically.

And the real issue on telephony though is, now that we have adjusted our books we can hold our own. Therefore, hold the gross margin on telephony. And the growth obviously will come from contract mobile business. So, the acquisition of Virgin Mobile in the last year is a critical investment and strategy around mitigating that whole fixed to mobile substitution

Tom Egan - Oppenheimer

Right, and then I have a follow up on data. And that is, out of Sky and Carphones we saw the data adds roughly… actually Sky's was flat with the first quarter and Carphones was actually up. If you have already said this I apologize, but what was the gross adds for data in the quarter? And did you see any pullback on pricing?

And then is there really an interest at that high speed. You’ve been talking about how you can have obviously a higher speed than your competitors. But have you seen the actual interest in that high speed? Thanks.

Neil Berkett – Chief Operating Officer

We don’t, we don’t actually disclose gross RGUs. We only do that in total subs and then obviously net RGUs. But in terms of high speed, yes we’re seeing quite a substantial uptick as a result from moving from 10-Meg to 20-Meg. We’re in the process of rolling that out now but the rollout will be completed within the next sort of 60 days. And we’re starting to see our customers really benefit from having the only consistent 20-Meg product in the marketplace. So, from that top tier of being sort of a small single digit percentage of our base, we’re seeing that starting to move. So, our customers have got a real incentive to upgrade.

Tom Egan - Oppenheimer

Right, thank you.

Operator

Your next question comes from the line of Paul Howard with Cazenove, please proceed.

Paul Howard - Cazenove

Thanks for that. A couple of questions. Another question really around ARPU, I suppose. Is there a way you can give us an idea of how much of your customer base is currently on the best tariff for that particular customer? And how quickly you expect customers to migrate to the better tariffs?

And secondly, similar points, what is the impact of ARPU of the retention activity and how has that trended over the last couple of quarters?

And then finally, a separate question really, given your investments in Virgin 1 and the plans with Setanta, are you still keen to return to the negotiating table on Sky basic channels or have you moved on from that now?

James F. Mooney - Chairman

Yes, let me take, it's Jim. We don’t divulge information on which tariff, which customers are at, that'll be too competitive, other than to say we feel we are on pretty good equilibrium now on, as Neil calls it, the back-book versus the acquisition book. So, that’s all I am really going to say about that. The ARPU, again was affected by the concessions that we gave to Sky, and we expect because of the… first part of the answer that the equilibrium exists and as we add Mobile contract and as you have positive net adds and positive RGUs, your ARPU will then start going up, which is what I said in the commentary.

As far as Sky goes, if they came forward with a reasonable offer which they haven’t… they are not even close to, we are boring you again with the same speech… their rates per viewer are 1900% higher what they are willing to receive, than what they are willing to pay, 1900% difference. So, there is… they are not in the same continent in terms of pricing that they should be, and that’s why we are selling them. So, but if they come forward with rates per subscriber that were in equilibrium, then I think we would be very willing to talk to them.

Stephen A. Burch - President and Chief Executive Officer

But frankly, we feel at this point, with Setanta, sports on basic and with the soon to be launched the same content as Sports news, we have superior basic offerings. Generic television programming with Sky one is easily replaced other than a couple of shows. But I think our sports… our basic service offering is much better than theirs at this point

Paul Howard - Cazenove

Can we just go back to the retention activity? Could you tell us sort of what level… what amounts… what number your customers are currently on retention packages? And is there a risk that as more customers become aware of them, more people are looking to sort of, at the better offers?

James F. Mooney - Chairman

Every business faces that same issue with, I bought my car at this price and than next guy bought his car at a different price. So, and that’s not something we are worried about. I think our pricing is pretty much at equilibrium. Neil's team has done a great job of managing that. The area that it was most predominant in, was telephony and I think we have largely fixed that. So, other than that, I think as Steve said, we are really aimed at delivering more value than anybody else. Right now, you can buy XL TV package with all the sports and all Setanta for £10 cheaper, it’s like 25% cheaper. That’s the key right now and we will be glad to sell that all day long. And in fact, Pete is selling it all day long right now. So, that’s our position on that.

Stephen A. Burch - President and Chief Executive Officer

Yes, retention isn’t just discounting, sometimes it’s offering higher quality which we believe we have done with the sports offerings. And our customers on XL service can save £10 over what they would pay to somebody else. We believe that will not only retain what we have but would help grow significantly over the coming months.

Paul Howard - Cazenove

Could you just explain what you mean by equilibrium? Does it… I am struggling to know what that means, between back-book and your acquisitions.

Neil Berkett – Chief Operating Officer

Basically if I can come in [ph] there. Basically we are acquiring customers at an ARPU, if you can… if you take the acquisition customers ARPU and you add the ARPU increase that arrives as a result of deal penetration and deal base, there is that equilibrium with those customers that are churning. So we have a net-net zero position in terms of that book.

Paul Howard - Cazenove

Okay. Okay. Thank you.

James F. Mooney - Chairman

Thank you.

Operator

Your next question comes from the line of Romeo Reyes with Jefferies. Please proceed.

Romeo Reyes - Jefferies & Co.

Hi, good afternoon. Two quick questions. I apologize if you've addressed it. On the net additions I think earlier in the year you had indicated that you would expect to be positive net adds during the second half of the year. Are you still holding to that guidance, number one? And then secondly, with respect to the ARPU, which I guess is probably the question here, can you… I don’t know if there is anyway of normalizing that number if you were to take out some of the retention activity related to the Sky basic view, what your normalized recurring ARPU would have been for --?

James F. Mooney - Chairman

Yes, Romeo, what we have already said is… you missed it, that we expect positive net adds in the second half of the year, much higher positive net RGUs in the second half of the year and improved ARPU in the second half of the year. And to get to your second question, the reason ARPU will improve is that the concessions for the Sky issue have gone away. So that won’t be repeated. And the other minor issues on telephony, we have gotten to that equilibrium position on telephony. So, there is always pluses and minuses. But we expect that pluses of growing triple play, adding more people to XL TV package as a result of the Setanta deal, continued VOD usage et cetera, et cetera to outweigh any minor negatives that are out there and in fact, the second half ARPU to first stabilize and then grow.

Romeo Reyes - Jefferies & Co.

Thank you.

James F. Mooney - Chairman

Thanks, Romeo.

Operator

Your next question comes from the line of Steve Scruton with HSBC. Please proceed.

Stephen Scruton - HSBC

Hi. Two questions, one on Docsis 3 and the other on the cost reduction phase II. And on the Docsis 3 when will we see a commercial launch start? And also you say it's 50-meg plus, but is it any reason why it wont be as fast in Singapore and Japan with, say much more than that?

Secondly, on the cost savings phase II and you say it's half of the NTL Telewest savings, but do you mean half of the cash flow or any half of the OpEx i.e. £125 million or £100 million?

James F. Mooney - Chairman

Neil.

Neil Berkett - Chief Operating Officer

In respect to Docsis 3 what we have done within the planning period is, for the next year is ensure that we've got capital allocated, to ensure that we can upgrade our current 24-20 meg customers to have a link between us and our competitors. We haven't made the decision to launch Docsis 3 yet. To do so, mid year would be… that we would be pre-release, we would take a bit of a bid on CPU. And so, we are in the position to do so as and when we need. And the key thing is, with our current technology, we are capable of leading light between ourselves and sort of inferior DSL product. And as you say, clearly there is no reason at all why our network can't support higher speeds than 50-meg when we roll out Docsis 3.

I will pass over to Jacques in terms of the half of the £250 million.

Jacques D. Kerrest - Chief Financial Officer

Yes. Thanks, Neil. Regarding phase II, I mean, we have spent more time on looking at our OpEx and we believe that, and that' why I said that we expected our cost saving does at least the half of the £200 million that you referred to earlier in terms of phase I. We also expect to slightly be over that £200 million at the end of 2007 anyway. So, we will be over the half of that £200 million in terms of OpEx for that phase II of cost reductions.

Stephen Scruton - HSBC

Okay. Thanks.

Operator

Your next question comes from the line of Simon Weeden with Goldman Sachs. Please proceed.

Simon Weeden - Goldman Sachs

Thank you. I think this… at least in part have been covered, but if I could press you little bit on the detail. Can you quantify your comment to that revenue trend in the second half, I think this was implied, you were confident that the consumer cable revenue would rise year-over-year in second half. And perhaps if you could just [technical difficulty] or deny that.

And second is on your cost saving exercise that you have a view of deploying IT, to gain support of what's now the circuit towards the telephony side, whether that can have an impact on CapEx and those could possibly have an impact on OpEx at some point?

James F. Mooney - Chairman

Jacques.

Jacques D. Kerrest - Chief Financial Officer

Sorry. We don't make predictions on the second half of revenue. What you heard today is that, yes, we expect that, as Jim indicated, ARPU to go up in the second half. And obviously, because of all the activities that Jim and Neil have described here. So, we expect our consumer revenue, our cable revenue to slightly go up in the second half. And that's why we are reflecting a higher ARPU for the second half.

Simon Weeden - Goldman Sachs

That's what the current quarter run rate is, is what you mean by that.

Jacques D. Kerrest - Chief Financial Officer

Sorry.

Simon Weeden - Goldman Sachs

That was the current quarter run rate as opposed to the year-over-year?

Jacques D. Kerrest - Chief Financial Officer

Yes, yes.

Simon Weeden - Goldman Sachs

Okay. Go ahead.

James F. Mooney - Chairman

Neil, could you take the second question about the…

Neil Berkett - Chief Operating Officer

Certainly, yes. I mean, clearly when we move to soft switching across the network that we are quite comfortable that the CapEx associated with that migration is within the guidance that we give. And in fact we are in the process of exploring with a couple partners, a unique way in which we can ultimately sunset or retire our TDM copper switches.

Simon Weeden - Goldman Sachs

Do you have any kind of timeframe in mind, sir?

Neil Berkett – Chief Operating Officer

It certainly won't be big bang. We already have soft switches in the network that are not operating in native mode. And we will roll soft switches out basically on an on-demand basis over the next 24 months.

Simon Weeden - Goldman Sachs

Great. Thanks very much.

Richard Williams - Investor Relations

Operator, we've probably got time for one more question, I think.

Operator

Sure. Your next question comes from the line of Mathew Walker with Lehman Brothers. Please proceed.

Mathew Walker - Lehman Brothers

Hi. Thank you very much. Just couple of questions on one, on the cost savings plan. If you could just outline a bit more about the cost savings plan. Is this on, off of the £250 million merger savings and when do you expect the second phase to be completed?

The second question is really around regulation, both the High Court action against Sky and also the Pay TV reviews. Could you give us a sense of timing on both of those? I read something recently saying that the High Court action, the lawyers have got together and then decided to go away for a fairly long period of time to prepare all their briefs, and so the action may not start until 2008, some point in 2008. You can give us any clarity on that. And also, any timing around the Pay TV review of OFCOM?

James F. Mooney - Chairman

Sure. First on the cost savings, as Jacques just said, we're really talking about half of the £200 million OpEx savings. I think you can safely say that will be accomplished by '09, over '08 and '09 is our timeframe to get all of that done.

On the regulatory front, as you know there are multiple regulatory fronts that we have been very aggressive on. Just getting to the point where something has to be done about the competitive positioning in the country. So whether you're talking about ITV, the carriage lawsuit, the premium pricing, their exclusivity of everything should Sky tries to do, and obviously they time their carriage negotiations to try and disrupt our brand and try to share the blame with us. It didn't work. As Steve indicated the strength of our TV platform which gets better by the month has really pulled through for us and really is in good shape going into the third quarter.

So, the timing of lawsuits, I'm not really going to comment on. If and when that happens, fine. We are going to continue to work with OFCOM and the Competition Commission and the whole U.K. regulatory environment. Our lawyers have been doing just an outstanding job of pushing our points across, along with other players. It's not just Virgin Media that is upset about the lack of competition in the country. And Brian Hall, our General Counsel and our outside counsels have just done a fantastic job of communication to OFCOM and again the whole regulatory community. And I think we are certainly getting our voice heard loud and clear. So we are very confident on that and that something's got to be done about all that stuff, and something will be done. The dates will come when they come. But in the meantime the team's been building the business and competing despite the regulatory issues as well.

So, with that, let me just try and conclude, I am real proud of what the team did in the second quarter despite a few obstacles, we overcame them. We are, I think better positioned now than in the five years I have been with the company to really grow the company, to reduce costs, to drive cash flow. The TV platform is really taking great strides, the VOD progress, the 19 million views has been outstanding. So, things are really starting to fall into place.

Malcolm and his team on the content side have just done a great job of building the content base. I just want to repeat one thing I said, remember 20 meg broadband, 50 meg broadband and a 100 meg broadband, which only cable can do will become more important everyday as we build the content that goes through those pipes. That's why we are focused so strongly on that, in terms of getting that content into the customer's homes across the multiple platforms, across the mobile platform, across the broadband platform and across the Pay TV platform. We are uniquely positioned to capitalize on that which is why Sky has spent so much money defending their space on broadband and telephony and basically giving those products away.

So, I just want to thank our whole team for hanging in there in the quarter and now really starting to build the business as we go forward. I am real pleased with where we sit right now. I think our EBITDA and OCF is in good shape going into the second half of the year and our volumes are really starting to pick up with contributions from Paul and Neil and Steve’s team.

So, thanks for listening this morning and look forward to talking to you again.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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